The $42 billion SVB run looks like 1929 to Elon Musk

It took about 36 hours from the start of the rumors Twitter began about the troubles at Silicon Valley Bank when the bank finally closed on Friday. Tech investors used Twitter to warn startups to withdraw their money from SVB, as the bank is widely known, to keep their money safe. The bank’s customers ended up transferring $42 billion from their accounts the day before the collapse.

On Tuesday, the head of Twitter, Elon Musk, whose service played a big role in the bank’s demise, expressed hope about the banking crisis by saying that it has “a lot of similarities with the current year in 1929.” It was the year of the bad “Black Monday” which marked the largest selloff in stock market history and the start of the Great Depression.

Musk’s comment, which he did not comment on, was made in response to tweets by Cathie Wood, the CEO of the high-profile Ark Investment Management. He complained about that regulators have failed to address the problems ahead of time faced by banks like SVB because they are too concerned with making rules for crypto companies. Wood also added that the banking crisis “came in plain sight” because the bank publicly reported having fewer assets than liabilities, a sign of trouble.

Twitter, which no longer has a communications team, did not immediately return luckThis is a request for comment.

Social media has become critical for people to share ideas, news, and opinions. But this may be the first time that a banking crisis has been at least partly caused by social media chatter.

“The irony of this loss of confidence is that the ultimate driver is technology itself. What makes Silicon Valley Bank unique is (1) the ease with which its customers can make withdrawals and (2) the speed with which news of Silicon Valley Bank’s impending demise spread,” Ben Thompson, a business and technology commentator, wrote on Monday. “It is the speed, facilitated by zero distribution costs for rumors and withdrawals, that is very damaging for an entity based on settlement time.”

Just days before the collapse, SVB Financial, SVB’s parent company, announced an after-tax loss which is $1.8 billion in the last three months of 2022 and said it would sell stock to raise $2.25 billion to cover its losses, raising eyebrows among investors. On Thursday, PayPal co-founder Peter Thiel said he Deposed all the money in his venture capital fund comes from SVB and advises the fund companies to move their money too. Other investment firms including Coatue Management and Union Square Ventures have told their companies to do the same.

When the news that prominent investors withdrew their money from SVB spread through the technology world, it resulted in “terrible terror“across the board, luck reported. The founders and investors of the company exchange messages which suggests that SVB has a problem.

Evan Armstrong, who writes for the business newsletter Napkin Math, pointed out on Saturday about how “total chaos can be caused” by social media. He traced the chatter about SVB on Twitter back to a post by financial newsletter Writer Byrne Hobart about how SVB was “technically insolvent last quarter” and took on huge debt. Hobart’s newsletter reported widely read by venture capitalists, which may have prompted many tech investors to focus more on SVB in the coming weeks.

The turmoil in the banking industry and the possibility of a contagion spreading the problem more widely is still great. Crypto-focus Signature Bank folded days after SVB while its crypto banking peer, Silvergateclosed days before SVB. Swiss bank Credit SuisseMeanwhile, it saw its shares fall by 30% on Wednesday on fears that it is in trouble and it is working with Swiss authorities on how to stabilize it.

George Ball, chairman of investment firm Sanders Morris Harris, said luck that the role of social media in driving bank customers’ decisions about what to do with their money will only increase.

“Social media can be a strong driver of deposits and investment flows,” he said, adding “that already started happening before SVB.”

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